Hang Seng Bank beats expectations with 1H15 profit of HK$20b

Despite asset quality deterioration.

Hang Seng Bank reported 1H15 net profit of HK$20,048m, 5% above Barclays estimates and 19% above Bloomberg consensus.

According to a research note from Barclays, this excludes the HK$10.6bn gain on sale of Industrial Bank, PBT of HK$11bn was up 36% h/h and 12% y/y and 7% above Barclays' expectations due to stronger than expected trading gains and lower than expected credit costs.

However, asset quality trends appear to be deteriorating with both NPL and overdue loans ratio rising h/h in both Hong Kong and China.

Here's more from Barclays:

Asset quality deterioration in both Hong Kong and China: NPL ratio rose h/h to 0.43% (2H14: 0.32%). Impaired loan balance rose by 36% h/h “due to the downgrade of a few corporate and commercial customers in Hong Kong and Mainland China”. Management maintains a “cautious outlook on the credit environment and continues to focus on maintaining a high level of asset quality”. However, credit cost declined to 18bps (2H14: 25bp) due to lower new impairment charges and lower general provisions.

Margin pressure: Net interest income rose by 2% h/h driven by loan growth of 2% h/h and partially offset by a slight decline in net interest margin by 2bps h/h to 1.86%, likely due to a compression of RMB spreads, in our view.

Strong market-related income: Fee income was strong as we had anticipated, up 22% h/h, largely led by growth in market-related fee income. Wealth management income (fund sales, brokerage, insurance) rose to HK$5bn, up 50% h/h.